There's been much talk in the news this week about the government's proposed changes to Tax Credits, and the decision taken last night by the House of Lords to delay their implementation. 

Our guest writer this week - Claire Carey (School Rep for the School of Nursing, Midwifery, Social Work and Social Sciences) summarises the proposals. Claire submitted a question on this matter for consideration in Prime Minister's Questions last week, and was quoted by Jeremy Corbyn in the discussion - this is an area Claire feels strongly about, and she highlights below the potential impact on students with families.

If you'd like more information about this issue, or would like to guest write an article for the website, please get in touch!

In 1999, a report from the New Labour Government entitled, Tackling Poverty and Extending Opportunity, announced their intention to create two new tax credits as part of the tax and benefits reforms. The current tax credits system was introduced in April 2003 and was designed to redistribute income to people on lower wages, for those with and without children as a way to tackle poverty.

Since the low level introduction of the national minimum wage of £3.60 back in 1999, many employers, who were previously paying considerably more than this, decided to halt their workers’ pay rises and wait for the minimum wage to ‘catch up’. Keeping wages low may have led to the rapid increase in the tax credits bill as single people and families became increasingly reliant on this benefit.

The total number of people claiming tax credits is approximately 4.8million, of these, 3.3 million are in paid work.

Many single people and families with children rely on tax credits to pay for childcare or to just make ends meet and from 2016 the Government have threatened to decrease entitlement quite significantly.

Alongside the suggested cuts, there are plans to increase the minimum wage to £7.20 from April 2016 and rebrand it as a ‘living wage’. In addition there are proposed increases at the point in which you begin to pay income tax, however, these will not counteract the loss of tax credits that many families will receive. Only those working for less than the proposed living wage will see an increase and, in fact, many employees will see a 1% increase or less. For example, those who work within the NHS and Public Sector.

From April 2016, the amount a single person or family can earn before having their award decrease will lower from £6420 to £3850. Any earned salary after the £3850 will be reduced by 48% off their tax credits, this was previously 41%.

Example:

A couple where the husband works full time earning the minimum wage and the wife works 20 hours earning the minimum wage paying childcare costs of £100 per week currently receive approximately £111 a week in tax credits.

Wages:  £20904pa

Working Tax Credits

Basic Element £1960

Couple element £2010

Working 30 hours + £810

Childcare £70 a week (70% maximum claimed)

Child Tax Credits

Family Element £545

Child Element £2780

Total Maximum Award £11745

£20904 (wages) – 6420 (income threshold) = £14484 (£5938.44 is 41% of this figure)

£11745 (maximum award) - £5938.44 = £5806.56

Tax credits will decrease to £54.04 in April 2016. Yet wages will only have increased by £30 a week, making a loss of £27 per week

Proposed changes:

Wages:  £22464pa (increased minimum wage)

Working Tax Credits

Basic Element £1960

Couple element £2010

Working 30 hours + £810

Childcare £70 a week (70% maximum claimed) and assuming no increase in cost.

Child Tax Credits

Family Element £545

Child Element £2780

Total Maximum Award £11745

£22464 (wages) – 3850 (new income threshold) = £18614 (£8934.72 is 48% of this figure)

£11745 (maximum award) - £8934.72.44 = £2810.28

This is just one calculation and there are many other variant that can affect the award such as higher childcare costs, more than one child, and a member of the family having a disability.  In this one example, the family will be £3000 worse off under the changes.

Guest writer:  Claire Carey